Persistent Institutions

Some institutional transitions are implemented as the deliberate outcome of bargaining among a small number of elite groups, but many are more decentralized, with a large number of private actors informally adopting new practices that are later confirmed by changes in formal governance structures. For example, land tenure norms, changes in conventional crop shares, shifts in inheritance practices, and traditional property rights all are informal institutions, or conventions, that persist for long periods of time and sometimes experience rapid changes in the absence of government policies. To capture these informal and decentralized aspects of institutional persistence and change, we study transitions between conventional contracts among members of two classes. The driving mechanism in our model comes from intentional deviance from conventions by individuals, leading to some contracts being selected over others in the long-run. Transitions between contractual conventions occur when sufficiently many individuals deviate from (rather than conform to) the status quo convention. We identify conditions under which efficient and/or egalitarian contractual conventions are likely to be long-run stable equilibria. We endogenize the population sizes of the two classes and obtain conditions under which barriers to intergenerational mobility increase the probability of unequal insitutions. We also let the rate of deviation from the status quo convention vary with the degree of inequality and group network structure. Finally, we introduce a government motivated to support the long-term interest of one of the groups, and identify the conditions under which it will adopt redistributive strategies. JEL codes: D02 (Institutions), D3 (Distribution), C73 (Stochastic and Dynamic Games; Evolutionary Games)